Runner Run-Down: B.C.’s New Property Transfer Tax
Opinions / August 8, 2016
15% tax for foreign investors seems great in theory, but flawed in practice
After what feels like an eternity of listening to Vancouver locals complain about foreign investment in real estate, the province has decided to slap a 15 per cent property transfer tax onto the city’s homes for buyers from out of the country.
Data collected by the B.C. government between June 10 and July 14 revealed that foreign buyers represent nearly $1-billion of the money spent on residential real estate, with 86 per cent of that figure being invested in the Lower Mainland. Foreign home ownership in Vancouver and its surrounding areas has caused locals to struggle with finding an affordable place to live. Not only does it drive the market sky high, but it also results in too many buildings sitting vacant in a city with a housing crisis.
To elaborate, those who do not live here are coming to Vancouver, snatching up homes that could belong to those who do, and catching a flight back to their place of residence to wait for their property value to rise. Maybe they’ll use it as a vacation home. Meanwhile, almost 2,000 homeless individuals have been counted in our city already this year, and young people here are finding it increasingly difficult to put a roof over their own heads.
The government decided to address that problem by enforcing the tax—which comes into effect Aug. 2—and using the money collected from it to fund provincial housing and rental programs, under the Housing Priority Initiatives Fund. More details about the fund will be released within the upcoming months.
For the purchase of a $2-million house, the additional 15 per cent would represent approximately $300,000. Obviously, that charge would act as a deterrent for foreign investors, which is exactly what the province is going for.
Alas, every rose has its thorn.
There are obvious ways of getting around the tax, and in Vancouver’s real estate industry—as we’ve seen with shadow flipping this year—doing business under the table is the name of the game.
The primary concern by critics is that foreign buyers will simply go through locals to purchase their property for them. The idea is not complicated, nor would it be difficult to carry out. All a foreign investor would have to do is convince a friend or family member to sign the necessary contracts, or for a more direct method, set up a Canadian company themselves. An existing loophole that allows real-estate company shares to be sold to new owners without question may also provide a way out of paying for buyers from overseas.
If that doesn’t work, the buyers may simply go elsewhere, such as Vancouver Island. More likely is that they will funnel into the Fraser Valley, thanks to the fact that the tax will only be in action within the confines of Metro Vancouver. That doesn’t make a lot of sense considering that most of the homes owned by foreign investors currently exist there, but as things are, that’s just the way the cookie crumbles. In the future, Finance Minister Mike de Jong predicts that it may be extended to other areas of the province.
The most unavoidable drawback of the tax is that foreign investors may simply not care about the 15 per cent add-on, as many of them are extremely wealthy regardless.
The Real Estate Board of Greater Vancouver seems particularly peeved about the last-minute approval of the tax, which was introduced without consultation between the government and industry. Board President Dan Morrison has stated that they are “calling on government to exempt real estate transactions that are in the process of closing from this new tax,” to avoid “short-term volatility in the market,” as written in a Langley Advance article.